Inflation is a thief. It’s the quiet kind of thief that doesn't break a window but just siphons a little bit of gas out of your tank every single night until, eventually, you can't even make it to the grocery store. Most people think they're safe because they have "safe" investments like cash or standard bonds. They aren't. If you’ve been watching the price of a ribeye steak or a gallon of milk lately, you know exactly why the iShares TIPS Bond ETF (ticker symbol TIP) has become such a massive talking point in the world of fixed income.
But here is the thing.
Most investors buy this fund for the wrong reasons at the wrong time. They see the word "inflation" in the name and assume it’s a magic shield that goes up whenever prices do. It’s not that simple. Honestly, the way TIP behaves can be downright confusing if you don't understand how the Treasury Department and BlackRock actually put this thing together.
The Weird Way TIP Actually Works
The iShares TIPS Bond ETF tracks the Bloomberg US Treasury Inflation-Protected Securities (TIPS) Index. Unlike a normal bond where the interest payment is fixed, TIPS are designed so the principal value—the actual amount of the bond—adjusts based on the Consumer Price Index (CPI). If the CPI goes up, your principal goes up. Since the interest (coupon) is a percentage of that principal, your paycheck goes up too.
It sounds perfect.
However, you’ve got to account for interest rates. This is where people get burned. TIP holds bonds with maturities usually ranging from one year to twenty-plus years. Because these are long-term bonds, they are incredibly sensitive to what the Federal Reserve does with interest rates. If the Fed hikes rates to fight inflation, the price of the bonds inside the ETF can drop faster than the inflation adjustment adds value.
Think back to 2022. Inflation was screaming higher. You would think an inflation-protected fund would be the top performer, right? Nope. The iShares TIPS Bond ETF fell about 14% that year. Why? Because the Fed was slamming the brakes on the economy by raising rates at a historic pace. The "duration risk" swallowed the "inflation protection." You have to hold two thoughts in your head at once: you're protected against rising prices, but you're still vulnerable to rising rates.
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Comparing TIP to the Alternatives
If you're looking at this fund, you're likely comparing it to something like the Schwab US TIPS ETF (SCHP) or maybe the Vanguard Short-Term Inflation-Protected Securities ETF (VTIP).
The iShares version is the big dog. It’s been around since 2003, making it one of the oldest ETFs in the space. It has massive liquidity. If you’re a big institutional trader or just someone who wants to be able to sell your shares in a heartbeat without getting a bad price, TIP is usually the default choice. But it’s more expensive than the Schwab version. BlackRock charges an expense ratio of 0.19%, while Schwab’s SCHP is way down at 0.03%.
Does that 0.16% difference matter? For a buy-and-hold investor, yeah, it adds up over a decade. But TIP’s massive volume means the "bid-ask spread" is often tighter, which is a nerd way of saying it’s cheaper to trade.
Then there’s the "Short-Term" vs "Broad Market" debate.
The iShares TIPS Bond ETF is a broad market fund. It holds the long stuff. If you want protection from inflation without the massive roller coaster of interest rate swings, you’d look at something like VTIP or STIP (the iShares short-term version). Those only hold bonds maturing in less than five years. They don't move as much when the Fed talks, but they also don't give you that big "pop" if long-term inflation expectations really spiral out of control.
The Tax Trap Nobody Mentions
Let's talk about the IRS, because they always want their cut. This is one of the most annoying parts of owning TIPS or an ETF like TIP in a regular taxable brokerage account.
When the principal of the underlying bonds increases due to inflation, the IRS considers that "phantom income." You haven't sold the ETF. You haven't even received that cash in your hand. But you still owe taxes on that upward adjustment in the year it happens. It’s basically a tax bill for a gain you haven't realized yet.
This is why almost every serious financial advisor tells you to put the iShares TIPS Bond ETF in a 401(k), an IRA, or some other tax-deferred account. If you hold it in a standard account, you’re just creating a massive headache for yourself come April.
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When Should You Actually Buy?
Timing the market is a fool’s errand, but timing "break-even inflation" is a different story.
The price of TIP is driven by what’s called the break-even rate. This is the difference between the yield on a regular Treasury bond and the yield on a TIPS bond. Basically, it’s what the market expects inflation to be over the next 10 years.
If you think inflation is going to be higher than what the market currently expects, you buy TIP.
If you think the market is overreacting and inflation will actually be lower than the consensus, you stick with regular bonds.
In early 2026, we’ve seen a lot of volatility in these expectations. If the labor market stays tight and energy prices refuse to settle down, the iShares TIPS Bond ETF starts looking like a very smart hedge. But if the economy cools off and we enter a "disinflationary" period, this fund will likely underperform a standard total bond market fund like BND or AGG.
Nuance Matters: Credit Risk vs. Inflation Risk
One thing that makes the iShares TIPS Bond ETF feel safer than corporate bonds is the lack of credit risk. These are US Treasuries. Unless the US government literally ceases to function and stops paying its bills—which, let's be honest, would mean we have much bigger problems than our ETF portfolios—you are going to get your money back.
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You aren't betting on a company like Apple or Ford to stay solvent. You are betting on the purchasing power of the dollar. In a weird way, TIP is a bet against the dollar’s strength. When the dollar buys less, TIP pays more.
But don't mistake "no credit risk" for "no price risk."
I’ve seen people put their entire "emergency fund" into TIP thinking it’s a savings account. It’s not. It can drop 10% in a few months if the macro environment shifts. It’s a tool for a diversified portfolio, not a place to park the money you need for next month's rent.
Actionable Strategy for Investors
So, what do you actually do with this information?
First, check your "duration." If you’re worried about interest rates going up, the iShares TIPS Bond ETF might be too volatile for you. You might want to mix it with a short-term version to bring the average maturity down.
Second, look at your location. If TIP is in a taxable account, consider moving it to an IRA to avoid the "phantom income" tax issue. It’s a simple move that saves a lot of money over time.
Third, use it as a "rebalancing" tool. Because TIPS often move differently than stocks and differently than regular bonds, they provide a great diversification benefit. When stocks are crashing because of a "stagflation" scare (high inflation + low growth), TIP is often one of the only things in the green.
Finally, don't buy it just because you saw a scary headline about the price of eggs. By the time the news is talking about inflation, it’s usually already priced into the ETF. The time to buy is when things feel calm, but you suspect a storm is brewing.
Next Steps for Your Portfolio:
- Calculate your current inflation exposure. Look at your portfolio and see how much is in fixed-rate bonds vs. inflation-protected assets. Most experts suggest a 10% to 20% allocation of your bond "bucket" to TIPS if you're concerned about long-term purchasing power.
- Review your tax status. Check if your TIP holdings are in a taxable account. If they are, calculate your "tax-drag" and see if it makes sense to swap them into a tax-advantaged account like a Roth IRA.
- Compare the Break-even Rate. Before buying, look at the 10-year Break-even Inflation Rate (readily available on the St. Louis Fed's FRED database). If the rate is around 2% and you think 3% or 4% is more likely, the iShares TIPS Bond ETF is a strong "buy."
- Assess your time horizon. If you need the cash in less than three years, skip the broad-market TIP and look at short-term equivalents like STIP to avoid being hammered by interest rate volatility.